Auto-investing: Fortnightly or Quarterly to save on fees?

Question

Hi everyone!

I'm invested in VAS, VSO, and VGS, and I'm setting up an auto-investment. I save $900 weekly and plan to invest $500 fortnightly: $200 in VGS, $200 in VSO, and $100 in VAS. Given the annual fees (VAS: 0.1%, VSO: 0.3%, VGS: 0.18%), should I switch to quarterly investments to reduce fees? Any advice would be appreciated!

Answer

Hello!

It’s great to see that you have a structured investment plan in place. When considering the frequency of your investments, it’s important to weigh the impact of transaction fees, if any, and the potential benefits of dollar-cost averaging.

In your case, you’re investing in ETFs like VAS, VSO, and VGS, which have relatively low annual management fees. The decision to switch from fortnightly to quarterly investments primarily affects how often you are purchasing shares and does not directly impact the annual fees charged by these funds. These fees are typically deducted from the fund’s assets and reflected in the net asset value (NAV) of the ETF, regardless of how frequently you buy shares.

However, if you are considering switching investment frequencies to potentially save on brokerage fees (if applicable), then investing less frequently (e.g., quarterly instead of fortnightly) could reduce these costs. This is because you would be making fewer transactions over the year. It’s important to calculate whether the savings on brokerage fees outweigh the benefits of more frequent investing, which can capitalize on market dips through dollar-cost averaging.

Regarding the point about switching funds frequently to chase lower fees, it’s crucial to consider the broader implications such as transaction costs, potential capital gains tax, and the complexity of managing multiple funds. Constantly switching investments to save on slightly lower management fees can lead to higher transaction costs and tax implications that might offset the benefits of lower fees.

In your current strategy, maintaining a consistent approach with VAS, VSO, and VGS allows you to diversify across different segments and geographies without overcomplicating your portfolio. This approach aligns well with a platform like Pearler, which emphasizes long-term investing and financial growth through strategic, consistent investments rather than frequent trading.

Pearler’s tools and features can help you automate your investment plan and keep track of your portfolio’s performance, aligning with your investment goals and strategy. This can be particularly beneficial in maintaining discipline in your investment approach and ensuring you are on track to meet your financial objectives.

In summary, consider the total impact of transaction and potential tax costs when deciding on your investment frequency and whether to switch funds. Sticking to a consistent, long-term strategy often proves beneficial in building wealth over time.

You can find out more about this topic here: Investment Fees

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

Hey Mason :)

Awesome job on the savings rate, you’re killing it!

The annual fees are a management fee for the operation of each index fund.  This is separate to brokerage fees which is payable each time you purchase shares.

Whether you invest regularly or not, the management fees are based on how much you have invested and what fees the fund charges.  So you can’t do much about this besides pick sensible low cost funds, which you have already done.

As for brokerage, the simplest way to reduce this would be to make one purchase per month rather than twice per month.  Keep in mind this would only save a relatively small amount – say $6 or so per month.  So it’s up to you whether that’s worth it or not.

You also don’t need to invest in each fund each month.  There’s simply no need to do that.  Just take it in turns of adding to each fund and that’ll do the same thing.

Keep up the good work.
Dave

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